Review your taxes now to find trouble spots

Don't put away those tax forms just yet. They hold clues to money you might be leaving on the table.

Now is the time to look over your tax filings and try to identify trouble spots – places where you lost deductions because you didn't have the right documentation, or missed deadlines, or didn't know the rules.

If you paid someone to prepare your taxes, you can put these questions to them. Give them a little break first, since they probably haven't slept much as they plowed through their clients' last minute returns. Then ask for a review meeting.

If you did your own taxes, using TurboTax or other software, some of the answers will be included in the reports that come with the programs. If you're still using paper and pencil, then you might have to do some calculating.

Here's how to study your tax forms and strategize the rest of 2009 so you'll pay less next year.

First, learn your tax rate and your income level. A simple way to calculate this is to divide your gross income by your total federal tax – that's your effective tax rate. Now divide your adjusted gross income by your total federal tax. That's your tax bracket. To find your marginal tax bracket for 2009 (the percentage you'll pay on your last dollar of income, or save on the last dollar of deduction) check the new Internal Revenue Service tables, buried in a publication called IRS Revenue Procedure 08-66 (available at
www.irs.gov/pub/irs-drop/rp-08-66.pdf
). Most American taxpayers will be in the 25 percent bracket.

Once you have this information, you can begin to plan. Note that there are several phase-outs of benefits in the tax code. Once your taxable income tops $60,000 ($120,000 for joint filers), you can't take deductions for education loan interest. At income levels above $83,400 ($166,800 joint), filers begin to lose some of the value of their itemized deductions. If you're on the border of one of these thresholds, and expect to have many of these deductions, you can try to hold 2009 income under thresholds (by deferring bonuses until next year, maxing out on your retirement contributions, taking tax losses and the like.)

Look at the bottom line. Are you getting a big refund? Bad planning! If you haven't cut your withholding at work to accommodate the latest stimulus plan, do so. Use the extra cash in every paycheck to pay down credit card balances or “invest” it in something that's tax-deductible, like a retirement or education account.

Reclaim deductions. Did you miss out on miscellaneous itemized deductions like work and moving expenses because they didn't quite reach 3 percent of your adjusted gross income? Start a “bunching” strategy, where you pay for those items every other year whenever possible. That could make them big enough to claim every two years.

Stay on top of charitable deductions. If you've given away big bags of clothing, books and household goods over the year, there's a good chance you undervalued them when claiming your charitable deduction. Keep a list of items, get receipts, and assign your own values to every item. You can use the Salvation Army's guide (available at salvationarmysouth.org/valueguide.htm). Or, use TurboTax's It's Deductible program (available at turbotax.intuit.com/personal-taxes/itsdeductible/) for advice on how much each item is worth.

Compare yourself to others. If your deductions in a particular category are far lower than the average, that may be perfectly normal, but it may mean that you are missing something you could be writing off. For folks with between $50,000 and $100,000 of adjusted gross income, for example, the average deduction for mortgage interest is $9,813 and for charitable contributions is $3,860, according to CCH, a tax research firm.

Check out your capital losses. If you have any investments outside of tax-favored accounts and didn't get a loss for 2008, you missed an opportunity. Check your stocks and funds, and if any are underwater, sell to lock in the loss. Buy another investment with the money, or wait at least 31 days before buying back the same investment. You'll be able to use that loss to offset gains, and, if you have more losses than gains in 2009, use $3,000 of it to reduce your ordinary taxable income.

Look at your adjustments to income. Did you reduce your taxes because you were contributing to an IRA, a SEP IRA or a 401(k) or similar plan? If not, get started for 2009, right now, and next April you may see a better bottom line on your 1040.